New VAT law: Achieving key goal faraway

The new VAT (Value Added Tax) law has mostly been transformed into its 1991 version because of myriad changes made during the past six months, critics have said.

Economists were critical of this edition, saying changing the provisions of the fresh law has made it far worse than the VAT Act 1991.

They said while the online-based VAT and Supplementary Duty Act-2012 was introduced on July 1, 2019 after a delay of seven years, it is unlikely to achieve its key objective of overhauling the tax administration.

Already, VAT collection has fallen short of the target by Tk 82.58 billion, highest deficit among the three wings, in the first four months of the current fiscal year.

The receipt recorded a mere 1.79 per cent growth over the previous fiscal year.

An analysis done by this correspondent has found the VAT policy wing of the National Board of Revenue, or NBR, issued a total of 34 orders in the forms of either clarifications or amendments to the new law between July 01, 2019 and December 31, 2019 period.

The orders were categorised as Statutory Regulatory Orders, General Orders, Special Orders and directives.

Even more, the original law passed by parliament in 2012, underwent major changes in the budget for fiscal year 2019-20.

After the budget, the provisions of the VAT law, passed by the parliament through Finance Bill-2019, saw a number of amends.

For example, while the main concept of the new law was to introduce a single and uniform rate of VAT in all stages, the authorities opted for multiple rates yielding to the pressure from the business community.

This means the main goal of the new VAT law will not be achieved unless the government automates the VAT administration, a senior VAT official said.

The slow pace of VAT Online project implementation and the poor capacity of the Vietnamese contractor are among the major barriers to achieving the goal," said the official preferring anonymity.

Officials said finance minister AHM Mustafa Kamal has recently expressed his disappointment at the slow progress of the project.

Project officials said some 40 per cent of the Tk 6.90 billion project, financed by both the World Bank and the government, has been spent so far without any visible progress.

The online VAT registration is the only success of the project, although economists and businesses are sceptical about this.

Currently, the issuance of VAT registration number, known as Business Identification Number, needs three working days as the officials issue it after verification.

Dr Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), said none of the steps of the project has proved successful so far.

"Why have businesses to wait for so many days for getting the BIN under the automated VAT system?" he asked.

He said the new VAT law has become a worst case because of the changes and modifications.

"The previous VAT law was better than that of this garbage," he said.

Even though the project is scheduled to expire on June 30, 2020, people familiar with the situation said more than 60 per cent work will remain pending due to the lack of the required capacity of the contractor.

Chief executive officer of the Business Initiative Leading Development Ferdous Ara Begum said the goal of the new VAT law will not be achieved unless the government automates the VAT administration.

She favoured introducing a single rate of VAT in all stages.

A field level VAT commissioner, who asked not be named, said the NBR would not be able to achieve the VAT collection target with the present form of new law.

He said the volume of SROs and other orders on amends is as much as the 1991 law.

The BUILD CEO and the field level commissioner said in some cases the VAT wing issued orders that contradict the provisions of the very law, sending wrong signal to the business community.

The government took the initiative to implement the new VAT law, terming the previous one "distorted."

The law, first drafted by the International Monetary Fund (IMF), was a condition for getting loans from its Extended Credit Facility, or ECF.

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